Governing Law Clause In Australia: What To Include With Example

When you’re trading across states or working with interstate suppliers and clients, your contracts need to answer a simple question: which law applies if there’s a dispute?

That’s where a governing law clause earns its keep. It sets the legal “rules of the game” for the contract, so everyone knows where they stand if something goes wrong.

In this guide, we break down what a governing law clause is, how it differs from jurisdiction, which Australian law to pick for your contract, practical drafting tips, and copy‑and‑paste examples you can tailor for your business.

What Is A Governing Law Clause?

A governing law clause says which legal system will apply to interpret the contract and resolve any disputes about it. In Australia, this usually means nominating the law of a particular state or territory (for example, New South Wales or Victoria).

Why it matters:

• Different states can have different rules (for example, on limitation periods, security of payment, interest, and some procedural issues).
• Certainty reduces disputes. If the contract clearly says “this agreement is governed by the law of X,” there’s less scope for argument later.
• It pairs with a jurisdiction clause (see below) to make dispute handling faster and cheaper.

A governing law clause works alongside other risk controls in your contract, such as a clear scope, payment terms, and a well-drafted limitation of liability clause. Together, these provisions set expectations and manage risk before problems arise.

Governing Law Vs Jurisdiction: What’s The Difference?

These two often appear side by side, but they do different jobs:

• Governing law tells you which laws apply to interpret the contract.
• Jurisdiction tells you which court(s) can hear a dispute.

You can, in theory, nominate the law of one place and the courts of another, but most small businesses keep them aligned to avoid confusion and cost.

Exclusive vs non‑exclusive jurisdiction:

• Exclusive jurisdiction means disputes must be brought in the named court only.
• Non‑exclusive jurisdiction lets a party bring proceedings in the named court, but doesn’t stop them from suing elsewhere if appropriate.

For many small businesses, a non‑exclusive jurisdiction clause paired with a local governing law strikes a practical balance-especially if your customers or suppliers are spread across Australia.

Which Law Should You Choose In Australia?

There isn’t a one‑size‑fits‑all answer, but here’s how to decide:

• Pick your home base if most of your operations, staff and records are there. It’s easier and more cost‑effective to deal with local advisers, courts and regulators.
• Match your counterpart if they’re significantly bigger or insist on their state’s law. In that case, negotiate other commercial protections to balance the risk.
• Align with your industry if a particular state has industry‑specific rules you can’t avoid (for example, construction security of payment schemes). Choosing that state’s law can avoid conflict.

Important: a governing law clause can’t “turn off” mandatory Australian laws. For example, the Australian Consumer Law (ACL) applies nationally to consumer guarantees and unfair practices regardless of the state you choose. Likewise, the unfair contract terms regime for small businesses (now with stronger penalties) can apply to standard form contracts across Australia, which is why many businesses seek a UCT review and redraft of their standard terms.

If you trade outside Australia, you can still choose an Australian state’s law. Just remember that foreign courts won’t automatically enforce everything in your contract, and some local consumer or employment rules overseas may still apply.

Governing Law Clause Examples (Australia)

Use these clauses as starting points. Always review them in context of your whole agreement.

Short, Plain English (Non‑Exclusive Jurisdiction)

“This agreement is governed by the laws of New South Wales, Australia. Each party submits to the non‑exclusive jurisdiction of the courts of New South Wales and any courts that may hear appeals from those courts.”

Exclusive Jurisdiction Version

“This agreement is governed by the laws of Victoria, Australia. Each party irrevocably submits to the exclusive jurisdiction of the courts of Victoria and courts of appeal from them.”

National Business With Multiple Offices

“This agreement is governed by the laws of Queensland, Australia. Proceedings in connection with this agreement may be brought in the courts of Queensland or any other court of competent jurisdiction, and each party irrevocably submits to those courts.”

International Counterparties

“This agreement is governed by the laws of New South Wales, Australia. Subject to any mandatory laws that apply, the parties submit to the non‑exclusive jurisdiction of the courts of New South Wales and any courts of appeal.”

Tip: If you include arbitration or mediation, be sure your governing law and jurisdiction wording works with your dispute resolution clause. For example, if you choose arbitration, the seat and rules (e.g. ACICA) matter just as much as governing law.

Drafting Tips And Pitfalls For Small Businesses

Governing law is one line, but it has big consequences. Here’s how to get it right.

1) Keep Governing Law And Jurisdiction Together

Putting them side by side prevents ambiguity. If your contract has a dedicated “Disputes” section, include both terms there so they’re easy to find.

2) Use Clear Place Names

Don’t just say “Australia.” Name the state or territory (e.g. “Western Australia”) because state rules differ in areas that may matter to your dispute.

3) Decide Exclusive Vs Non‑Exclusive Early

Exclusive jurisdiction offers certainty, but can be inflexible if you need urgent relief in another location. Non‑exclusive is more flexible but can introduce forum shopping risk. Consider your bargaining power and where your counterpart is based.

4) Align With Your Dispute Resolution Process

Make sure the governing law, jurisdiction, and any mediation or arbitration clause work together. If you plan to arbitrate, note the “seat” of arbitration, as this determines the procedural law for the arbitration.

5) Check For Conflicts With Other Clauses

Clauses about notices, payment timeframes, interest, indemnity and liability caps can interact with state-based rules. It’s smart to review them together with your governing law choice and, where needed, refresh related terms like your contract variation process and assignment rights (see assignment of contracts).

6) Don’t Forget Execution And Acceptance

How your contract is formed and executed can impact enforceability. If you’re relying on email acceptance, remember the rules around when an email is legally binding. If you’ll sign in different locations or times, ensure your contract permits execution in counterparts and supports e‑signing.

7) Avoid “Copy-Paste” Traps

Borrowing a clause from another contract often imports hidden assumptions-like a different state’s law, outdated jurisdiction, or references to arbitration rules you’re not using. Tailor the wording to your business and the deal at hand.

8) Balance The Clause With Commercial Reality

If you choose your home state but your customer base is mostly interstate, consider a non‑exclusive jurisdiction or a fair venue option to avoid roadblocks at the first sign of a dispute.

Updating Or Negotiating Your Contracts

If you discover your governing law clause is missing, out of date, or mismatched to your operations, you have options.

Option A: Issue Updated Standard Terms

For repeat clients, update your master terms and ensure they apply to new orders or statements of work going forward. Check that your order process properly incorporates those terms (for example, via a tick‑box or signed order form).

Option B: Use A Deed Of Variation

Where you must update an existing contract mid‑term, agree a short, signed amendment that swaps in the correct governing law and jurisdiction. Keep it simple and precise so there’s no confusion about what’s changing and what’s not. A clean change process will sit neatly with your broader approach to amending contracts.

Option C: Negotiate On New Deals

On a fresh contract, raise governing law early. If your counterparty wants their state, consider trading other deal points-like payment security, caps on liability, or tighter timelines. If you’re updating those risk terms as well, revisit your liability clause so your risk position matches the forum where disputes will be heard.

Practical Steps To Implement Changes

• Audit your standard templates and shared folders for inconsistent or old clause wording.
• Align your website terms, order forms and proposals with the same state and jurisdiction wording.
• Confirm that email acceptances, click‑wraps and e‑signing platforms are set up to capture clear acceptance (and store records securely).
• If you sell nationally on standard terms, consider a short “governing law” selector in your order flow, or choose one state and ensure your terms are robust under the unfair contract terms regime.

If you’re not sure which approach to take, a short contract review can help you decide on a consistent position and update your templates efficiently.

FAQs About Governing Law Clauses

Does A Governing Law Clause Override The ACL?

No. The Australian Consumer Law applies nationally. You can’t contract out of consumer guarantees or misleading and deceptive conduct prohibitions by choosing a different state’s law.

Can We Choose “Australian Law” Instead Of A State?

You can, but it’s vague. Courts prefer clarity. Naming a state or territory avoids unnecessary debate if a dispute arises.

What If There’s No Governing Law Clause?

A court will work out the “closest and most real connection” (for example, where the contract is performed or negotiated). That uncertainty adds cost. Including a clause is better.

Should Startups Choose Their Investor’s State?

It depends on leverage. If you accept the investor’s preferred state, balance it with commercial protections elsewhere in the agreement and make sure your team can manage disputes in that forum.

Where Do Electronic Signatures Fit In?

Governing law doesn’t automatically decide whether e‑signatures are valid, but it can influence process and evidence rules. Pair your clause with clear acceptance mechanics and, if needed, execution in counterparts. You can also tighten up how you accept offers to avoid disputes about emails forming binding agreements.

Putting It All Together In Your Contract

A good governing law clause is short, clear and consistent with the rest of your contract. To keep everything aligned:

• Choose a state or territory that makes sense for your operations.
• Pair governing law with a jurisdiction clause (exclusive or non‑exclusive) that fits your risk profile.
• Check related provisions-payments, notices, liability, dispute resolution-and update them if needed.
• Ensure your acceptance and execution mechanics work across states, including counterparts and e‑signing.
• Keep your templates consistent across your website, proposals and order forms.

If you’re refreshing your standard terms, it’s a great time to streamline adjacent clauses, clarify how variations will be made, and tidy up any assignment and novation rights (see our guide to assignment of contracts).

Key Takeaways

• A governing law clause names the state or territory law that applies to your contract; pair it with a jurisdiction clause so you also know where disputes can be heard.
• Choose a state that suits your operations and risk profile-usually your home base-and keep the wording short and unambiguous.
• Mandatory Australian laws like the ACL still apply, even if you choose a different state’s law, so make sure your standard terms are strong under the unfair contract terms regime.
• Align governing law with related clauses (liability caps, dispute resolution, notices) and practicalities like e‑signing and counterparts.
• If your clause is missing or out of date, update your templates and, where needed, vary existing contracts with a simple, signed amendment.

If you’d like a consultation on drafting or updating your governing law and jurisdiction wording in your contracts, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.